Tucows Q1 results: Enom purchase helps grow revenue by 55% to $69.6 million

Tucows Inc. (NASDAQ:TCX, TSX:TC), reported its financial results for the first quarter ended March 31, 2017. All figures are in U.S. dollars.

Financial Results

Net revenue for the first quarter of 2017 increased 55% to $69.6 million from $44.7 million for the first quarter of 2016. The first quarter’s results only include the contribution from Enom’s operations since January 20, 2017, the date the acquisition was completed.

Domain name sales from the Tucows portfolio are also up in Q1 2017 from $740,000 to $916,000.

Net income for the first quarter of 2017 decreased to $2.4 million, or $0.23 per share, from $4.4 million, or $0.42 per share, for the first quarter of 2016. Adjusted EBITDA¹ for the first quarter of 2017 decreased to $6.2 million from $7.3 million for the first quarter of 2016. The first quarter of 2017 was impacted by the effect of the purchase price accounting adjustment related to the fair value write down of deferred revenue from the Enom acquisition which lowered adjusted EBITDA by $1.4 million and is a portion of the $4.8 million net deferred revenue change noted above. The first quarter of 2016 benefited from $0.4 million reversal of an overachievement bonus accrual for 2015 that was no longer required and a foreign exchange gain of $0.4 million that was not repeated.

Cash and cash equivalents at the end of the first quarter of 2017 decreased slightly to $15.0 million compared with $15.1 million at the end of the fourth quarter of 2016 and $10.0 million at the end of the first quarter of 2016.

“During the first quarter of 2017 we successfully began integrating Enom into our domain business and we successfully migrated over 20,000 mobile customers to Ting from RingPlus. We also continued to deploy significant resources to develop our Ting Internet operations and to invest in building out our Ting Fiber network. With a solid quarter behind us, I am pleased to report that we remain on track to meet our adjusted EBITDA goal of $50 million less $8 million of acquisition related non-cash impacts for fiscal 2017,”2 said Elliot Noss, President and Chief Executive Officer, Tucows Inc.

“Revenue for first quarter grew 55% year-over year to $69.6 million. Net deferred revenues increased in the first quarter of 2017 by $4.8 million primarily due to the Enom acquisition. Prior to the second quarter of 2016, this amount would have been included in our then adjusted EBITDA definition. Overall, we are delighted with how each of our businesses executed against core strategies. Domains took steps toward scale and efficiency, Ting Mobile grew and Ting Internet improved and invested in fiber network expansion, systems and people,” added Mr. Noss. “With our sound financial position and our significant cash flows, we remain well positioned for sustainable growth and continued investment in our strategic priority, building fiber.”

Summary Financial Results

(In Thousands of US Dollars, Except Per Share Data)

	3 Months Ended March 31
	2017 (unaudited)	2016 (unaudited)	% Change
Net revenue	69,568	44,746	55%
Net income	2,446	4,438	-45%
Basic Net earnings per common share	$0.23	$0.42	-45%
Adjusted EBITDA1	6,196	7,318	-15%
Net cash provided by operating activities	2,402	5,615	-57%

This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table. Tucows has revised its definition of Adjusted EBITDA as detailed in the description below and the table reconciling Adjusted EBITDA to GAAP net income.

Summary of Revenues and Gross Margin
(In Thousands of US Dollars)

	Revenue		Gross Margin
	3 Months Ended March 31		3 Months Ended March 31
	2017 (unaudited)	2016 (unaudited)	2017 (unaudited)	2016 (unaudited)
Network Access Services:
Mobile Services	17,963	16,107	8,396	7,549
Other Services	1,138	891	295	504
Total Network Access Services	19,101	16,998	8,691	8,053
Domain Services:
Wholesale
Domain Services	39,092	21,258	4,629	3,615
Value Added Services	4,057	2,299	3,499	1,820
Total Wholesale	43,149	23,557	8,128	5,435
Retail	6,402	3,451	2,784	1,872
Portfolio	916	740	655	580
Total Domain Services	50,467	27,748	11,567	7,887
Network Expenses:
Network, other costs	–	–	(2,343)	(1,233)
Network, depreciation and amortization costs	–	–	(971)	(358)
Total Network Expenses	–	–	(3,314)	(1,591)
Total revenue/gross margin	69,568	44,746	16,944	14,349

The adjusted EBITDA goal information discussed above is a non-GAAP financial measure. See footnote 2 below for more information on this non-GAAP measure.